Trigano (EPA:TRI) Could Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Trigano's (EPA:TRI) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Trigano is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.23 = €501m ÷ (€2.9b - €750m) (Based on the trailing twelve months to August 2024).

Therefore, Trigano has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Auto industry average of 12%.

View our latest analysis for Trigano

In the above chart we have measured Trigano's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Trigano for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Trigano are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 90% more capital is being employed now too. So we're very much inspired by what we're seeing at Trigano thanks to its ability to profitably reinvest capital.

The Bottom Line On Trigano's ROCE

In summary, it's great to see that Trigano can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 104% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 3 warning signs we've spotted with Trigano (including 2 which are a bit concerning) .

Trigano is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.